Department of Management Studies

National Institute of Technology, Tiruchirappalli

LEAGAL ASPECTS OF BUSINESS ASSIGNMENT

PROVISION COMMENTARY-SECTION 17 “FRAUD” DEFINED

Submitted by,

E A ANPHIN (215119027)

M S SANJAY (215119051)

SACHIN V A (215119073)
Extract of the Relevant Legislative Text

"Fraud" means and includes any of the following acts committed by a party to a contract, or
with his connivance, or by his agents , with intent to deceive another party there to or his agent,
or to induce him to enter into the contract:

(1) the suggestion as a fact, of that which is not true, by one who does not believe it to be true;

(2) the active concealment of a fact by one having knowledge or belief of the fact;

(3) a promise made without any intention of performing it;

(4) any other act fitted to deceive;

(5) any such act or omission as the law specially declares to be fraudulent.

Explanation: Mere silence as to facts likely to affect the willingness of a person to enter into a
contract is not fraud, unless the circumstances of the case are such that, regard being had to
them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself,
equivalent to speech.

Objectives or Purposes of the Provision

A contract, consent to which is obtained by fraud, is voidable under s 19. The party deceived
has the option to affirm the contract and insist that he be put in the position in which he would
have been if the representations were true, or he may rescind the contract to the extent it is not
performed. Upon rescission, he is liable to restore the benefit received by him under s 64 and
may recover damages. The measure of damages recoverable is essentially that applicable to the
tort deceit, ie, all the actual loss directly flowing from the transaction included by the fraud,
including the heads of consequential loss, and not merely the loss which was reasonably
foreseeable. Where a document, which was intended to be in favor of a particular person but,
as a result of fraud of the defendant, conveyed to someone else, the transaction would be also
voidable under s 19.

Where a contract is induced by fraud, the representee is entitled to claim rescission, or damages
or both. He would have a remedy by way of such suit, even if restitutio in integrum is not
possible as in Indranath Banerjee v Rooke. In Firbank’s Executors v Humphreys, the damages

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for fraudulent misrepresentation, under the general rule, were arrived at by considering the
difference in the position the plaintiff would have been in, had the representation been true and
in the position he is actually in, in consequence of it’s being true.

Scope of Application – Interpretation in Any Two Judgements

Gopalaiah vs The Chairman And Managing ... on 11 September, 1998

The appellant who belongs to a backward community and hails from a poor family got his
name registered in the Employment Exchange stating therein that he had studied upto SSLC,
but had not completed the same. He was called for interview for the post of a peon and was
selected. He was appointed as peon on 22nd of July, 1983 and put under probation for a period
of six months. He was issued with a show cause notice on 24th of December, 1983 alleging
that as he had secured appointment by suppressing the fact that he had passed SSLC in the year
1979 itself, he thereby committed the fraud incurring a liability of being removed from service.
It has to be noticed that the probationary period of the appellant had been extended for a further
period of three months. Before the appellant could submit his explanation, the first respondent
without holding any enquiry and without affording him any opportunity of showing the cause,
passed an order on 28th of March, 1984 terminating his services with immediate effect.
Aggrieved by the order of dismissal, the appellant took up the matter with the Management for
his reinstatement, for which conciliation proceedings were also initiated before the Regional
Labour Commissioner (Central), Bangalore. Upon failure of the conciliation proceedings, the
matter was referred to the Central Government Industrial Tribunal-cum-Labour Court,
Bangalore. After entering upon the reference and allowing the parties to lead evidence, vide its
award dated 2nd of June, 1988 (Annexure-J), the Labour Court rejected the reference holding
that the first respondent-bank was justified in terminating the services of the appellant, as he
had allegedly committed the fraud and secured the appointment by misrepresentation of facts.
Not satisfied with the award of the Labour Court, the appellant filed a writ petition in this
Court, which was also dismissed vide the order impugned in this Appeal. The learned Counsel
appearing for the appellant has submitted that both the Labour Court as well as the learned
Single Judge committed a mistake in holding that the appellant had misrepresented or
committed the fraud, as according to him, another person of the same name was also a student
of the school in which the appellant had studied, who had actually passed the SSLC
examination in the year 1977 and that the appellant had not passed the said examination as on
the date when he was appointed as a peon in the year 1983. It is submitted that even if the
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appellant had not disclosed of his having passed the SSLC examination on the relevant date,
he could not be held guilty of fraud, as withholding of such an information did not in any way
affect the employer. It also did not amount to hold that the appellant was not possessing the
requisite qualification required for the post at the relevant time. The possession of higher
qualification could not be made a basis for penalising and punishing him. Instead of
appreciating that the appellant had passed SSLC examination and was appointed as a peon for
which the minimum qualification required was less than the aforesaid examination, the first
respondent punished him for his allegedly possessing better merit and higher
qualification.Under the circumstances, the appeal is allowed by setting aside the award of the
Labour Court and the order of the learned Single Judge. However, keeping in view the peculiar
circumstances of the case, the court direct that consequent upon his reinstatement to the post
of peon, the appellant would be entitled to continuity of service and other benefits, but the
arrears of back wages only for a period of last four years from the date of this order. Parties to
bear their own costs.

P.J. Moore vs Valsa on 11 September, 1991

A widower, father of three children, married again, but the wife after twelve years of married
life sought to have the marriage annulled on the ground that her consent was obtained by fraud.
Learned single Judge declared the marriage null and void. The fraud alleged is this; Before the
second marrigae, appellant (husband) had undergone vasectomy , but he did not disclose it to
the respondent (wife). As she did not conceive for thirty months, she was anxious to know the
reason. Appellant then divulged to her that he had undergone vasectomy before marrigae. But
he pacified her that he would undergo recanalisation. However, he later changed his mind and
declined to under recanalisation. His excuse for this volte-face is that such a course is repugnant
to Pentecostal faith to which he has subscribed on becoming a member of Assemblies of
Church of God. Though appellant contended that respondent was told about his vasectomy
during marriage negotiation stage itself, learned single Judge found, on evidence, that it was
not disclosed to her earlier. Further contention of the appellant that she too did not want to bear
children as she had rheumatic heart conditions, was found against by the learned single Judge.
Persuaded to disturb those findings on fact arrived at by the learned single Judge on
appreciation of evidence, despite the efforts made by the learned counsel for the appellant to
intefere with those findings. He therefore focussed on the legal question whether nondisclosure
of the said fact would amount to fraud as understood in Section 19 of the Indian Divorce Act,

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1896 (for short 'the Act'). Sri. P. K. Balasubramanyan, learned counsel for the apepllanl,
developed his arguments thus : Section 19 of the Act which recognises jurisdiction of the High
Court to make a decree on the ground that consent was obtained by fraud is to be strictly
interpreted; the concept of fraud envisaged in the section is narrower than the word "fraud"
defined in Section 17 of the Contract Act; mere concealment of a fact, unless it relates to the
identity of a spouse or the ceremony to be undergone, does not amount to fraud; hence
nondisclosure of information regarding vasectomy is not fraud of such a nature as to vitiate the
consent for marriage. Full Bench of the Gauhati High Court in Best Morning v. Mirmalendu
AIR 1987 Gau 63 affirmed the decree annuling the marriage on the identical ground. In that
case, a widower, who too was the father of children in his first marriage, underwent vasectomy
and without disclosing the fact married another lady. K. N. Saikia, Acg. C.J. (as he then was)
observed that though concealment or deception by one of the parties in respect of traits or
defects of character, habits, temper, reputation, bodily health and the like is not sufficient
ground for avoiding a marriage, there is a difference if the husband concealed his vasectomy.
It was found that the husband was guilty of fraud in wangling consent of the wife. This view is
in accord with the approach made by the learned single Judge.There is no reason to interfere
and hence court dismissed the appeal.

Conclusion

Fraud is essentially a question of fact and the person who alleges that has to prove the same. If
the plaintiff seeks the annulment of the decree on the ground of fraud or misrepresentation, he
has to specifically plead the same and mention the circumstances which can lead to the
conclusion of the existence of fraud. Merely making a mention of fraud or misrepresentation
in the pleadings is not enough.